Sprint bonuses ignored iPhone’s financial impact

Last week Sprint Nextel Corp.’s compensation committee decided to ignore the financial impact of the company’s iPhone launch when calculating payouts under two incentive compensation plans. It ignored the added revenue those iPhone sales generated, and it ignored huge subsidies.

“Extraordinary circumstances.” This is Sprint Nextel Corp.’s latest description of the 1.8 million iPhones it sold in the final months of 2011.

Sprint’s iPhone launch last October was extraordinary not because it brought in more than 700,000 new customers. Four of every 10 iPhones, however, did go to new subscribers, the company has said.

The launch was deemed extraordinary by the company’s directors, specifically those who hand out bonuses to executives and other eligible employees.

The bonuses typically reflect how well the company met preset targets for revenues, customer retention, cash and other measures of Sprint’s performance.

Last week Sprint’s compensation committee decided to ignore the financial impact of the company’s iPhone launch when calculating payouts under two incentive compensation plans.

It ignored the added revenue those iPhone sales generated, and it ignored the huge subsidies Sprint paid to put iPhones in customers’ hands.

Like other carriers, Sprint charges its customers less for the iPhone than it pays Apple Inc. for the phones. Wireless companies expect to make up these costs, and then some, from the monthly bills those customers pay.

Until those revenues come in, the iPhone is a big money loser for Sprint. The 1.8 million sold late last year cut heavily into the company’s operating results.

Ignoring the iPhone’s impact, however, worked to boost bonuses compared with what the original math would have dictated.

Sprint said the bonus calculations also ignored a big cash payment from LightSquared LLC under the companies’ deal announced last summer. This omission worked to lower bonuses.

Spokesman Scott Sloat said the committee didn’t have the choice of including either event in the original targets. The LightSquared deal didn’t come until after the targets were set. The talks with Apple were confidential and would have become public if the iPhone sales’ impact were included in the publicly reported targets.

“There was no way to include them in the criteria for the incentive plans,” Sloat said.

According to the Sprint filing, the committee has the power to change the incentive payments to avoid “inequitably” increasing or decreasing them due to some “extraordinary circumstances.”

After all plusses and minuses, Sprint said, the short-term bonuses came in at 73.7 percent of the potential payouts instead of 63.7 percent as the original math would have prescribed.